Yahoo Finance HUD Sec. Ben Carson announces initiative to push more bank-originated mortgages
Housing and Urban Development Secretary Ben Carson announced Monday that HUD has reached an agreement with the Department of Justice to ease the handling of False Claims Act cases related to loans for low-income homebuyers.
HUD says the memorandum of understanding is designed to encourage banks to originate more mortgages insured by the Federal Housing Administration. Carson said banks have been turned off to originating FHA-insured loans amid a crackdown on banks accused of underwriting FHA-insured loans to borrowers who were not eligible, a violation of the FCA.
“After the housing crisis, many of the banks were persecuted I would say for relatively minor infractions,” Carson told Yahoo Finance in an interview on Monday. “Some of them were major infractions, but many of them were minor infractions.”
Banks used to represent about 45% of lenders originating FHA-insured mortgages as of 2010, HUD says. The agency says banks now represent only 15% of lenders, as non-banks like Quicken Loans have surged to prominence.
As a non-bank, Quicken Loans is not regulated by the main banking regulators (the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation). Quicken Loans, the largest mortgage lender in the U.S., is held by the privately owned parent company Rock Holdings Inc.
Carson said he and HUD “very much appreciate the non-banks” but said the mortgage lending space should “have a wide group of people who offer credit.”
The agreement with the DOJ tasks HUD with evaluating each FCA claim, which Carson says will allow his agency to see if the case can be “resolved administratively.” If HUD cannot close the case, it would be referred to the DOJ for investigation.
As originally reported by Politico, HUD will also only refer cases to the DOJ when more than 15 loans show serious violations or if the loan has an unpaid principal balance of at least $2 million and shows “systemic or widespread” violations.
Several large banks have been docked hefty penalties for FCA claims in the past. In 2014, Bank of America (BAC) paid $1 billion to settle an FCA case alleging that it fraudulently sold mortgages that were defective to Fannie Mae and Freddie Mac. That same year, the DOJ and HUD teamed up with the Department of Veterans Affairs to fine JPMorgan Chase (JPM) $614 million for underwriting non-compliant mortgage loans and submitting them for insurance coverage.
Carson said Fannie Mae and Freddie Mac, which provide liquidity to the mortgage market by purchasing and packaging mortgages, continue to face their own structural issues as entities under “conservatorship.” During 2008, the federal government bailed out the two entities to keep the mortgage system functioning, but lawmakers have since struggled to find a solution to place both Fannie Mae and Freddie Mac out of conservatorship.
Carson said it is “high-time” for both agencies to begin that process, adding that there are plans for an “appropriate type of government backstop” for guarantors that would want to compete with Fannie Mae and Freddie Mac.
“We would like to capitalize those entities and get them out into the private sector, as well as providing opportunity for other insurers to come into that market,” Carson told Yahoo Finance.
Brian Cheung is a reporter covering the banking industry and the intersection of finance and policy for Yahoo Finance. You can follow him on Twitter @bcheungz.
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